Paper 4 Taxation For Nov 2011

PAPER – 4 : TAXATION
QUESTIONS
Residential Status and Scope of total income

1. (a) Only individuals and HUFs can be resident, but not ordinarily resident in India; firms
and companies can be either a resident or non-resident. Discuss the correctness of
this statement.
(b) Ms Diana, a French national, got married to Mr. Ravi of India in Paris on 01.04.2009
and came to India for the first time on 01.12.2009. She remained in India up till
31.07.2010 and left for Paris on 01.08.2010. She returned to India again on
01.03.2011. While in India, she had purchased a commercial complex in Kolkata on
15.03.2010, which was leased out to a company on a rent of ` 30,000 p.m. from
01.04.2010 She had taken loan from a bank for purchase of this commercial
complex on which the bank had charged interest of ` 1,12,000 upto 31.03.11. She
had received the following gifts from her relatives and friends during 1.4.10 to
31.07.2010:
`
From father-in-law 47,000
From brother-in-law 9,000
From two very close friends of her in-laws, ` 1,67,000 and ` 25,000 1,92,000
Determine her residential status and compute the total income chargeable to tax
along with the amount of tax payable on such income for the Assessment Year
2011-12.
Salaries
2. Mr. Sinha, Finance Manager of DRF Ltd., Chennai, furnishes the following particulars for
the financial year 2010-11.
(i) Salary ` 51,000 per month
(ii) Value of medical facility in a hospital maintained by the company ` 8,000
(iii) Rent free accommodation owned by the company
(iv) Housing loan of ` 5,50,000 at the interest rate of 4% p.a. (No repayment made
during the year). The rate of interest charged by State Bank of India (SBI) as on
01.04.2010 in respect of housing loan is 10%.
(v) Gifts in kind made by company on the occasion of marriage of daughter of Mr.
Sinha ` 7,250.
© The Institute of Chartered Accountants of India

116 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : NOVEMBER, 2011
(vi) A Cupboard was provided to Mr. Sinha at his residence for his use. This was
purchased on 01.08.2007 for ` 75,000 and sold to Mr. Sinha on 01.05.2010 for
` 35,000.
(vii) Personal purchases through credit card provided by the company amounting to
` 12,000 was paid by the company. No part of the amount was recovered from
Mr.Sinha.
(viii) An maruti car which was purchased by the company on 21.06.2007 for ` 4,50,000
was sold to the assessee on 19.08.2010 for ` 1,80,000.
Compute the income chargeable under the head “Salaries” of Mr. Sinha for the
Assessment year 2011-12.
Income from house property
3. Mr. X and Y constructed their houses on a piece of land purchased by them at Mumbai.
The built up area of each house was 1,200 sq.ft. ground floor and an equal area in the
first floor. X started construction on 01.05.2008 and completed construction on
01.04.2010. Y started the construction on 01.04.2008 and completed the construction on
31.05.2010. X occupied the entire house on 01.04.2010. Y occupied the ground floor on
01.06.2010 and let out the first floor for a rent of ` 20,000 per month on 01.07.2010.
However, the tenant vacated the house on 28.02.2011 and Y occupied the entire house
during the period 01.03.2011 to 31.03.2011.
Following are the other information
Particulars ` (per annum)
(i) Fair rental value of each unit 1,20,000
(ground floor /first floor)
(ii) Municipal value of each unit 90,000
(ground floor / first floor)
(iii) Municipal taxes paid by X – 12,000
Y – 12,000
(iv) Repair and maintenance charges paid by X – 31,000
Y – 35,000
X has availed a housing loan of ` 30 lakhs @ 12% p.a. on 01.06.2008. Y has availed a
housing loan of ` 20 lakhs @ 12% p.a. on 01.07.2008. No repayment was made by
either of them till 31-03-11. Compute income from house property for X and Y for the
previous year 2010-11 (A.Y. 2011-12).
Profits and gains of business or profession
4. Mr Mahesh, a retail trader of Panaji gives the following Trading and Profit and Loss
Account for the year ended 31st March, 2011:

PAPER – 4 : TAXATION 117
Trading and Profit and Loss Account for the year ended 31.03.2011
Particulars ` Particulars `
To Opening stock 1,10,000 By Sales 19,26,900
To Purchases 17,25,700 By Income from UTI 5,400
To Gross Profit 3,55,800 By Other business receipts 9,200
By Closing stock 2,50,000
21,91,500 21,91,500
To Salary 78,000 By Gross profit b/d 3,55,800
To Rent and rates 38,400
To Interest on loan 18,000
To Depreciation 1,47,500
To Printing & stationery 20,000
To Postage & telegram 1,720
To Loss on sale of shares 9,700
(Short term)
To Other general expenses 6,180
To Net Profit 36,300
3,55,800 3,55,800
Additional Information:
(i) Salary includes ` 12,000 paid to his brother-in-law, which is unreasonable to the
extent of ` 5,000.
(ii) The whole amount of printing and stationery was paid in cash by way of one time
payment.
(iii) The depreciation provided in the Profit and Loss Account ` 1,47,500 was based on
the following information :
The written down value of plant and machinery is ` 5,90,000. A new plant falling
under the same block of depreciation of 15% was bought on 01.09.2010 for `
90,000. Two old plants were sold on 21.05.2010 for ` 1,00,000.
(iv) Rent and rates includes sales tax liability of ` 5,600 paid on 3.10.2011.
(v) Other business receipts include ` 4,600 received as refund of sales tax relating to
2009-10.
(vi) Other general expenses include ` 6,000 paid as donation to an Electroral Trust.

You are required to advise Mr. Mahesh whether or not he should offer his business
income under section 44AD i.e. presumptive taxation.
Capital Gains and Income from Other Sources
5. Mr. Ganesh submits the following information pertaining to the year ended 31st March,
2011.
(i) On 29.12.2010, when he attained the age of 70, his friends in India gave a flat at
Pune as a gift, each contributing a sum of ` 25,000 in cash. The cost of the flat
purchased using the various gifts was ` 3.75 lacs.
(ii) Mr. Ganesh sold the above flat on 30.1.2011 for ` 4.9 lacs. The Registrar’s
valuation for stamp duty purposes was ` 5.2 lacs. Neither Mr. Ganesh nor the
buyer questioned the value fixed by the Registrar.
(iii) His niece abroad sent him a cash gift of ` 55,000 through his brother for the above
occasion.
(iv) He had purchased some equity shares in Z Pvt. Ltd., on 8.4.2005 for ` 4.7 lacs.
These shares were sold privately on 20.8.2010 for ` 3.5 lacs.
(v) He also purchased a house from a friend in ` 2.5 lacs on 21.01.2011. (Stamp Duty
Valuation – ` 4 lacs).
(vi) Mr. Ganesh sold the above house on 23.3.2011 for ` 6 lacs.
(vii) He had purchased some equity shares in N Pvt. Ltd., on 8.6.2010 from his friend for
` 3.9 lacs (Fair Market Value ` 5.7 lacs). These shares were sold privately on
30.1.2011 for ` 6.3 lacs.
You are requested to calculate the total income of Mr. Ganesh for the assessment year
2011-12.
[Cost Inflation Index for F.Y. 2005-06 – 497, F.Y. 2009-10 – 632, 2010-11 – 711]
Set-off and Carry Forward of Losses
6. Mr. Nandit, a resident individual, furnishes the following particulars of his income and
other details for the previous year 2010-11:
Particulars `
(i) Income from salary 29,000
(ii) Net annual value of house property 77,000
(iii) Income from business 95,000
(iv) Income from speculative business 9,000
(v) Long term capital gain on sale of land 17,300
(vi) Loss on maintenance of race horse 11,000
(vii) Loss on gambling 5,000

Depreciation allowable under the Income-tax Act, 1961, comes to ` 17,000 for which no
treatment is given above.
The other details of unabsorbed depreciation and brought forward losses are:
Particulars `
(i) Unabsorbed depreciation (relating to A/Y 2000-01) 12,000
(ii) Loss from speculative business (relating to A/Y 2009-10) 18,000
(iii) Short term capital loss (relating to A/Y 2009-10) 9,200
Compute the gross total income of Mr. Nandit, for the Assessment year 2011-12, and the
amount of loss that can be carried forward.
Deductions from Gross Total Income
7. For the Assessment year 2011-12, the Gross Total Income of Mr. Tiwari, a resident in
India, was ` 4,12,690 which includes long-term capital gain of ` 55,000 and Short-term
capital gain of ` 13,000. The Gross Total Income also includes interest income from
banks of ` 18,000. Mr. Tiwari has invested in PPF ` 50,000, contribution to fixed
deposits for a period of 5 years amounted to ` 75,000 this year and also paid a medical
insurance premium ` 16,000. Mr. Tiwari also contributed ` 20,000 to Public Charitable
Trust eligible for deduction under section 80G. Compute the total income and tax there
on of Mr. Tiwari, who is 72 years old as on 31.3.2011.
Computation of Total Income and Tax liability of an individual
8. Praveen is a Chartered Accountant in practice. He maintains his accounts on cash basis.
He is a resident and ordinarily resident in India. His Income and Expenditure account for
the year ended March 31, 2011 reads as follows:
Expenditure ` Income `
Salary to staff 5,35,000 Fees earned:
Stipend to articled 27,000 Audit 7,68,200
assistants
Incentive to articled 3,000 Taxation services 5,47,400
assistants
Office rent 36,000 Consultancy 2,71,000 15,86,600
Printing and stationery 6,200 Dividend on shares of
Indian companies 10,524
(gross)
Meeting, seminar and Income from Unit Trust
conference 31,600 of India 7,600
Repairs, maintenance and 25,300 Profit on sale of shares 17,590
petrol of car

Subscription and 12,000 Honorarium received

periodicals from various institutions
for valuation of answer 14,510
papers
Postage, telegram and fax 28,800 Rent received from
residential flat let out 96,000
Travelling expenses 45,000
Municipal tax paid in 1,000
respect of house property
Net profit 9,81,924
17,32,824 17,32,824
Other information:
(i) The total travelling expenses incurred on foreign tour was ` 15,000 which was
within the RBI norms.
(ii) Incentive to articled assistants represent amount paid to two articled assistants for
passing IPCC Examination at first attempt.
(iii) Repairs and maintenance of car includes ` 2,000 for the period from 1.10.2010 to
30.09.2011.
(iv) Salary include ` 35,000 to a computer specialist in cash for assisting Mr. Praveen in
one professional assignment.
(v) ` 3,500, interest on loan paid to LIC on the security of his Life Insurance Policy and
utilised for repair of computer, has been debited to the drawing account of Mr.
Praveen.
(vi) Medical Insurance Premium on the health of:
Particulars Amount Mode of
` payment
Self 9,000 By Cheque
Dependent brother 6,000 By Cheque
Major son dependent on him 8,000 By Cash
Minor married daughter 5,000 By Cheque
Wife not dependant on assessee 5,000 By Cheque
(vii) Shares sold were held for 11 months before sale.
Compute the total income and tax payable of Praveen for the Assessment year
2011-12.

Provisions concerning Advance Tax and Tax Deducted at Source

9. (a) Discuss the provisions relating to payment of interest in case of failure to deduct or
pay tax at source.
(b) An amount of ` 50,000 was paid to Mr. Sudhir on 15.06.2010 towards fees for
professional services without deduction of tax at source. Subsequently, another
payment of ` 65,000 was due to Mr. Sudhir on 10.02.2011 from which tax @ 10%
(amounting to ` 11,500) on the entire amount of ` 1,15,000 was deducted.
However, this tax of ` 11,500 was deposited only on 25.07.2011. Compute the
interest chargeable under section 201(1A).
Provisions for filing of Return of Income
10. (a) The total income of a university without giving effect to exemption under section
10(23C) is ` 39 lacs. Its total income after providing the exemption is, however, nil.
Should the University file its return of income?
(b) Explain with brief reasons whether the return of income can be revised under
section 139(5) of the Income-tax Act, 1961 in the following cases:
(i) Defective or incomplete return filed under section 139(9).
(ii) Belated return filed under section 139(4).
(iii) Return already revised once under section 139(5).
(iv) Return of loss filed under section 139(3).
Computation of interest on delayed payment of service tax
11. Vibha Ltd. is engaged in providing management consultancy services. It was liable to
pay the service tax amounting to ` 10,000, electronically, for the month of August 2011.
However, due to some unavoidable circumstances, it could not pay the said amount on
due date and paid the service tax on 30th November, 2011. You are required to compute
the interest payable by Vibha Ltd. on delayed payment of service tax.
Taxability of transactions
12. State, with reasons, whether service tax is payable in the following cases:-
(a) Donations and grants-in-aid received by a Charitable Foundation imparting free
livelihood training to the youth.
(b) Representation of the client before any statutory authority in the course of
proceedings initiated under any law by a practicing Chartered Accountant.
Value of taxable services
13. Briefly provide the manner of determination of the value of taxable service for the
banking and other financial services relating to purchase or sale of foreign currency,
including money changing.

Special rate of service tax

14. Discuss the special rate of service tax leviable in case of an insurer carrying on life
insurance business.
Computation of value of taxable service
15. Rishabh Professionals Ltd. is engaged in providing services which became taxable with
effect from July 01, 2010. Compute the service tax payable by Rishabh Professionals
Ltd. on the following amounts (exclusive of service tax) received for the month of March,
2011:-
Particulars Amount (`)
Services performed before such service became taxable 5,00,000
Services provided to an International Organisation 1,50,000
Free services rendered to the friends 20,000
Advance received in March for services to be rendered in July, 2011 5,00,000
(The agreement got terminated in April, 2011. Hence, no services were
rendered in July. However, a sum of ` 3,50,000 was refunded in June,
2011)
Other receipts 12,00,000
Demerits of VAT
16. Can VAT be said to be non-beneficial as compared to single stage-last point system?
Composition Scheme for small dealers
17. What is the threshold exemption limit fixed for dealers to obtain VAT registration, as per
the White Paper?
Computation of VAT
18. Mr. Ram, a dealer in Tamil Nadu dealing in consumer goods, submits the following
information pertaining to the month of October, 2011:
Details of purchases of goods:-
Particulars (raw material purchased from within the State) Amount (`) Rate of VAT
Goods ‘A’ 10,00,000 Exempt
Goods ‘B’ 20,00,000 1%
Goods ‘C’ 30,00,000 12.5%

Details of sales of goods:-

Particulars (Sale of finished State in which goods Amount (`) Rate of VAT
goods) are sold
Tamil Nadu 5,00,000 12.5%
Produced from Goods ‘A’
Gujarat 7,00,000 1%
Produced from Goods ‘B’ Tamil Nadu 24,00,000 Exempt
Produced from Goods ‘C’ Tamil Nadu 35,00,000 4%
Compute the amount of Value Added Tax (VAT) payable by Mr. Ram for the relevant
month. There was no opening or closing inventory.
Inter-State stock transfer
19. Discuss the tax consequences of inter-state stock transfer under the VAT scheme.
Filing of returns
20. Discuss filing of return under VAT.
SUGGESTED ANSWERS/HINTS
1. (a) This statement is correct.

A person is said to be “not-ordinarily resident” in India if he satisfies either of the
conditions given in sub-section (6) of section 6. This sub-section relates to only
individuals and Hindu Undivided Families. Therefore, only individuals and Hindu
Undivided Families can be resident, but not ordinarily resident in India. All other classes
of assessees can be either a resident or non-resident for the purpose of income-tax.
Firms and companies can, therefore, either be a resident or non-resident.
(b) Under section 6(1), an individual is said to be resident in India in any previous year,
if she satisfies any one of the following conditions:
(i) She has been in India during the previous year for a total period of 182 days or
more, or
(ii) She has been in India during the 4 years immediately preceding the previous
year for a total period of 365 days or more and has been in India for at least 60
days in the previous year.
If an individual satisfies any one of the conditions mentioned above, she is a resident. If
both the above conditions are not satisfied, the individual is a non-resident.

Therefore, the residential status of Ms Diana, a French National, for A.Y.2011-12

has to be determined on the basis of her stay in India during the previous year
relevant to A.Y. 2011-12 i.e. P.Y.2010-11 and in the preceding four assessment year.
Her stay in India during the previous year 2010-11 and in the preceding four years
are as under :
P.Y.2010-11
01.04.2010 to 31.07.2010 - 122 days
01.03.2011 to 31.03.2011 - 31 days
Total 153 days
Four preceding previous years
P.Y.2009-10 [1.4.09 to 31.3.10] - 121 days
P.Y.2008-09 [1.4.08 to 31.3.09] - Nil
P.Y.2007-08 [1.4.07 to 31.3.08] - Nil
P.Y.2006-07 [1.4.06 to 31.3.07] - Nil
Total 121 days
The total stay of the assessee during the previous year in India was less than 182
days and during the four years preceding this year was for 121 days. Therefore,
due to non-fulfillment of any of the two conditions for a resident, she would be
treated as a non-resident for the Assessment Year 2011-12.
Computation of total income of Ms Diana for the A.Y. 2011-12
Particulars ` `
Income from house property
Commercial Complex located in Kolkata remained on rent
from 01.04.10 to 31.03.11 @ ` 30000/- p.m.
Gross Annual Value [30,000 x 12] (See Note 1 below) 3,60,000
Less: Municipal taxes -
Net Annual Value (NAV) 3,60,000
Less:Deduction under section 24
30% of NAV 1,08,000
Interest on loan 1,12,000 2,20,000 1,40,000
Income from other sources

Gifts received from non-relatives are chargeable to tax as

per section 56(2)(vii) if the aggregate value of such gifts
exceed ` 50,000.
- ` 47,000 received from her father-in-law would be
exempt, since father-in-law falls within the Nil
definition of “relative”, and gifts from a relative are
not chargeable to tax.
- ` 9,000 received from brother-in-law is exempt,
since brother-in-law falls within the definition of Nil
“relative" and gifts from a relative are not
chargeable to tax.
- Gift received from two friends of her in-laws
`1,67,000 and ` 25,000 aggregating to
` 1,92,000 is taxable under section 56(2)(vii)
since the aggregate of ` 1,92,000 exceeds
` 50,000. (see Note 2 below) 1,92,000 1,92,000
Total income 3,32,000
Computation of tax payable by Ms Diana for the A.Y. 2011-12.
Particulars `
Tax on total income of ` 3,32,000 (See Note 3 below) 17,200
Add: Education cess@2% 344
Add : Secondary and higher education cess @1% 172
Total tax liability 17,716
Total tax liability (rounded off) 17,720
Notes :
1. Actual rent received has been taken as the gross annual value in the absence
of other information (i.e. Municipal value, fair rental value and standard rent) in
the question.
2. If the aggregate value of taxable gifts received from non-relatives exceeds
` 50,000 during the year, the entire amount received (i.e. the aggregate value
of taxable gifts received) is taxable. Therefore, the entire amount of
` 1,92,000 is taxable under section 56(2)(vii).
3. The increased basic exemption limit of ` 1,90,000 is available only for resident
women. In this case, since the assessee is a non-resident, she cannot avail
the benefit of higher basic exemption limit of ` 1,90,000.
2. Computation of taxable salary of Mr. Sinha for the Assessment Year 2011-12

Particulars `
Income under the head “salaries”
Salary [` 51,000 x 12 ] 6,12,000
Medical facility in the hospital maintained by the company is exempt _
Rent free accommodation
[Rule 3(1) ] – 15% of salary is taxable 91,800
Valuation of perquisite of interest on loan (` 5,50,000 x 6%)
[ Rule 3(7)(i)] – 10% is taxable which is to be reduced by actual rate of 33,000
interest charged i.e. [ 10% - 4% = 6%] [See Note- (i)]
Gift received on occasion of marriage of daughter of Mr. Sinha 7,250
` 7,250 is taxable since its value is more than ` 5,000
[See Note – (iii)]
Use of Cupboard for 1 month
[` 75,000 x 10 /100 x 1 /12] 625
Perquisite on sale of cupboard
Cost 75,000
Less: Depreciation on straight line method @ 10% for 2 years 15,000
W.D.V 60,000
Less: Amount paid by the assessee 35,000 25,000
Personal purchase through credit card provided by Company – 12,000

Amount paid by Company is a taxable perquisite
Perquisite on sale of Motor Car to Mr. Sinha

Original cost of car 4,50,000
Less: Depreciation from 21.6.2007 to 20.6.2008 @ 20% 90,000
3,60,000
Less: Depreciation from 21.6.2008 to 20.6.2009 @ 20% on
WDV 72,000
2,88,000
Less: Depreciation from 21.6.2009 to 20.6.2010 @ 20% on
WDV 57,600
Value as on 19.08.2010- being the date of sale to employee 2,30,400
Less : Amount received from the assessee on 19.08.2010 1,80,000 50,400
Gross salary 8,32,075

Note :
(i) It is presumed that the housing loan was availed on 1.4.2010.
(ii) Under Rule 3(7)(viii), while calculating the perquisite value of benefit to the
employee arising from the transfer of any movable asset, the normal wear and tear
is to be calculated in respect of each completed year during which the asset was
put to use by the employer. In the given case, the third year of use of maruti car is
completed on 20.06.2010 and the car was sold to the employee on 19.08.2010. The
solution worked out above therefore provides for wear and tear for three years.
(iii) The value of any gift or voucher or token in lieu of gift received by the employee or
by member of his household from the employer not exceeding ` 5,000 in aggregate
during the previous year is exempt. In this case, the amount was received on the
occasion of daughter’s marriage and the sum exceeds the limit of ` 5,000.
Therefore, the entire amount of ` 7,250 is liable to be taxed as perquisite.
An alternative view possible is that only the sum in excess of ` 5,000 is taxable in
view of language of Circular No. 15/2001 dated 12.12.2001 that such gifts upto
` 5,000 in aggregate per annum would be exempt, beyond which it would be taxed
as a perquisite. As per this view, the value of the perquisite would be only ` 2,250.
In that case the gross salary would be ` 8,27,075.
3. Computation of income from house property of Mr. X for A.Y. 2011-12
Particulars ` `
Annual value is nil (since house is self occupied) Nil
Less : Deduction u/s.24(b)
Interest paid on borrowed capital ` 30,00,000 @ 12% 3,60,000
Pre-construction interest 1,32,000
30,00,000 x 12% x 22/12 = ` 6,60,000 4,92,000
` 6,60,000 allowed in 5 equal installments
6,60,000 / 5 = ` 1,32,000 per annum
As per second proviso to section 24(b), interest deduction
restricted to 1,50,000
Loss under the head “Income from house property” of Mr. X (1,50,000)
Computation of income from house property of Mr. Y for A.Y. 2011-12
Particulars Ground floor First
(Self occupied) floor
` `
Gross annual value (See note below) Nil 1,60,000

Less :Municipal taxes (for first floor)( 12,000/2) 6,000

Net annual value (A) Nil 1,54,000
Less : Deduction u/s.24
(a) 30% of net annual value 46,200
(b) Interest on borrowed capital
Current year interest
20,00,000 x 12% = 2,40,000 1,20,000 1,20,000
Pre-construction interest
20,00,000 x 12% x 21/12 = ` 4,20,000
` 4,20,000 allowed in 5 equal instalments
4,20,000 / 5 = ` 84,000 per annum 42,000 42,000
1,62,000 2,08,200
Total deduction u/s.24 (interest deduction restricted to 1,50,000 2,08,200
`1,50,000, in case of self occupied property) (B)
Income from house property (A)-(B) (1,50,000) (54,200)
Loss under the head “Income from house property” of
Mr.Y (both ground floor and first floor) (2,04,200)
Note : Computation of Gross Annual Value (GAV) of first floor of Y’s house – If a single
unit of property (in this case the first floor of Y’s house) is let out for some months and
self-occupied for the other months, then the annual letting value (ALV) of the property
shall be taken into account for determining the annual value. The ALV shall be
compared with the actual rent and whichever is higher shall be adopted as the annual
value. In this case, the actual rent shall be the rent for the period for which the property
was let out during the previous year.
The Annual Letting Value (ALV) is the higher of fair rent and municipal value. This
should be considered for 10 months since the construction of property was completed
only on 31.05.2010.
Annual letting value = ` 1,00,000 being higher of -
Fair rent = 1,20,000 x 10 /12 = ` 1,00,000
Municipal value = 90,000 x 10/12 = ` 75,000
Actual rent = ` 1,60,000 (` 20,000 p.m. for 8 months from July, 2010 to
February, 2011 )
Gross annual value = ` 1,60,000 (being higher of ALV of ` 1,00,000 and actual rent of
` 1,60,000)

4. Computation of business income of Mr. Mahesh for the A.Y. 2011-12.

Particulars ` `
Net Profit as per profit and loss account 36,300
Add Inadmissible expenses / losses
Salary paid to brother–in-law to the extent unreasonable
[Section 40A(2)] 5,000
Printing and stationery paid in cash [See Note-3] Nil
Depreciation (considered separately) 1,47,500
Short term capital loss on shares 9,700
Donation to electroral trust 6,000
Sales Tax Liability (According to section 43B)[Note 2] 5,600 1,73,800
2,10,100
Less: Income from UTI [Exempt u/s 10(35)] 5,400
Refund of sales tax [ Taxable u/s.41(1) – No adjustment
necessary] Nil 5,400
Business income before depreciation 2,04,700
Less: Depreciation (See Note 1) 87,000
1,17,700
Computation of business income as per section 44AD
As per section 44AD, the business income would be 8% of
turnover i.e., 19,26,900 x 8 /100 = ` 1,54,152.
The business income under section 44AD is ` 1,54,152.
Since, the business income under section 44AD is higher than
the business income as per the normal provisions of the Act,
Mr. Mahesh can offer his income under the normal provisions
of the Act, provided he maintains books of accounts under
section 44AA and get his accounts audited under section
44AB.
Note 1
Calculation of depreciation `
WDV of the block of plant & machinery as on 1.4.2010 5,90,000
Add :Cost of new plant & machinery 90,000
6,80,000
Less : Sale proceeds of assets sold 1,00,000
WDV of the block of plant & machinery as on 31.3.2011 5,80,000

Depreciation @ 15% 87,000

No additional depreciation is allowable as the assessee is not engaged
in manufacture or production of any article.
Note 2
Since sales-tax liability has been paid after the due date of filing return of income under
section 139(1), the same is not deductible.
Note 3
As per section 40A(3), any payment for an expenditure exceeding ` 20,000 made
otherwise than by way of an account payee cheque shall not be allowed as deduction. In
the aforesaid case, the payment for printing and stationery amounts to ` 20,000, hence,
the same shall be allowed.
5. Computation of total income of Mr. Ganesh for A.Y. 2011-12
Particulars ` ` `
Capital Gains
Short term capital gains (on sale of flat at pune)
(i) Sale consideration 4,90,000
(ii) Stamp duty valuation 5,20,000
Consideration for the purpose of capital gains as 5,20,000
per section 50C (stamp duty value, since it is higher
than sale consideration)
Less: Cost of acquisition [As per section 49(4),
value taken into consideration for 56(2)(vii) will be 3,75,000
the cost of acquisition]
Short term capital gains on sale of flat 1,45,000
Short term capital gains (on sale of house)
Sale consideration 6,00,000
Less: Cost of acquisition[See Note 3 below] 2,50,000
Short term capital gains on sale of house 3,50,000
Long term capital loss on sale of equity shares
of Z Pvt. Ltd


Less: Indexed cost of acquisition
(4,70,000 × 711/497) 6,72,374
Long term capital loss to be carried forward 3,22,374
(See Note 1 below)
Short term capital gain on sale of equity shares
of N Pvt. Ltd
Less: Cost of acquisition [As per section 49(4),
value taken into consideration for 56(2)(vii) will be 5,70,000
the cost of acquisition]
Short term capital gains on sale of shares 60,000 5,55,000
Income from other sources:
Gift from friends by way of immovable property on 3,75,000
29.12.2010 [See Note 2 below].
Gift received from niece [See Note 5 below ] 55,000
Excess of fair market value of shares of N Pvt. Ltd
over its purchase cost [ See Note 4 below]
[5,70,000 – 3,90,000] 1,80,000 6,10,000
Total income 11,65,000
Notes:
1. In the given problem, shares in Z Private Ltd. have been held for more than 12
month and hence, constitute a long term capital asset. The loss arising from sale of
such shares, is therefore a long-term capital loss. As per section 70(3), long term
capital loss can be set-off only against long-term capital gains. Therefore, long-
term capital loss cannot be set-off against short-term capital gains. However, such
long-term capital loss can be carried forward to the next year for set-off against
long-term capital gains arising in that year.
2. As per Section 56(2)(vii), where any immovable property is obtained without
consideration and if the stamp duty value of the property exceeds ` 50,000, the
stamp duty value of such property is chargeable to tax as income under the head
‘Income from other sources’.
3. If any immovable property is received for a consideration less than the stamp duty
value, then the provisions of Section 56(2)(vii) and Section 49(4) shall not be
attracted and the cost of acquisition shall be the actual amount paid for it.

4. Receipt of property other than immovable property received for a consideration

which is less than the aggregate fair market value of the property by an amount
exceeding ` 50,000 would attract the provisions of Section 56(2)(vii).
5. Any sum/gift received from a relative will not be deemed as income from other
sources [Section 56(2)(vii)]. Niece is not covered in the definition of relative as per
the Explanation to section 56(2)(vii). So, the cash gift received of ` 55,000 received
from the niece is taxable as ‘Income from Other Sources’.
6. Computation of Gross Total Income of Mr. Nandit for the A.Y. 2011-12.
Particulars ` `
(i) Income from salary 29,000
(ii) Income from House Property
Net annual value 77,000
Less : Deduction under section 24 (30% of ` 77,000) 23,100 53,900
(iii) Profits and Gains of business and profession
(a) Income from business 95,000
Less : Current year depreciation 17,000
78,000
Less : Unabsorbed depreciation 12,000 66,000
(b) Income from speculative business 9,000

Less : Brought forward loss from speculative 9,000 Nil
business
(Balance loss of ` 9,000 (i.e. ` 18,000 –
` 9,000) can be carried forward to the next
year)
(iv) Income from capital gain
Long term capital gain on sale of land 17,300
Less : Brought forward short term capital loss 9,200 8,100
Gross total income 1,57,000
Amount of loss to be carried forward to the next year
Particulars `
Loss from speculative business (to be carried forward as per section 73) 9,000
Loss on maintenance of race horses [to be carried forward as per section
74A(3)] 11,000
Notes :

(i) Loss on gambling can neither be set-off nor be carried forward.

(ii) As per section 74A(3), the loss incurred on maintenance of race horses cannot be
set-off against income from any other source other than the activity of owning and
maintaining race horses. Such loss can be carried forward for a maximum period of
4 assessment years.
(iii) Speculative business loss can set off only against income from speculative business
of the current year and the balance loss can be carried forward to A.Y. 2012-13. It
may be noted that speculative business loss can be carried forward for a maximum
of four years as per section 73(4).
7. Computation of total income and tax payable by Mr. Tiwari
Particulars ` `
Gross total income including long term capital gain 4,12,690
Less : Long term capital gain 55,000
3,57,690
Less : Deductions under chapter VI-A:
u/s. 80C in respect of
- PPF deposit 50,000
- Contribution to Fixed deposits 75,000
1,25,000
Maximum deduction restricted to ` 1,00,000 [Section 80CCE] 1,00,000
u/s. 80D (it is assumed that premium is paid otherwise than by 16,000
way of cash. Since, Mr. Tiwari is a senior citizen, the maximum
limit for deduction is ` 20,000 )
u/s. 80G (See Working note below) 10,000 1,26,000
Total income (excluding long term capital gains) 2,31,690
Total income (including long term capital gains) 2,86,690
Tax on total income (including long-term capital gains of 9,338

` 55,000) [(2,86,690-2,40,000) x 20%]
Add : Education cess @ 2% 187
Add : Secondary and Higher Education cess @ 1% 93
Total tax liability 9,618
Total tax liability (rounded off) 9,620
Working Note:

Computation of deduction u/s.80G

Gross total income (excluding long term capital gains) 3,57,690
Less : Deduction u/s.80C and 80D 1,16,000
2,41,690
10% of the above 24,169
Contribution made 20,000
Lower of the two eligible for 80G deduction 20,000
Deduction u/s.80G – 50% of ` 20,000 10,000
Note: As per section 112, the unexhausted basic exemption limit can be exhausted
against long-term capital gains. Therefore, since the total income of ` 2,86,690 (inclusive
of long-term capital gains of ` 55,000) is more than the basic exemption limit of
` 2,40,000 by ` 46,690, there would be tax liability on the excess amount being the long
term capital gain taxable @ 20%.
8. Computation of Total Income of Mr. Praveen for Assessment Year 2011-12.
Particulars Working Amount in
Note Nos. `
Income from House Property 1 66,500
Profit and gains of Business or Profession 2 8,68,200
Short-term capital gains 3 17,590
Income from other sources 4 14,510
Gross Total Income 9,66,800
Less: Deduction under Chapter VI-A 5 14,000
Total Income 9,52,800
Tax on total income
Total Income 9,52,800
Less: Short-term capital gains (See Note 9 below) 17,590
Normal Income 9,35,210
Tax on normal income 1,34,563
Tax on short-term capital gains @15% 2,639
1,37,202
Add: Education cess @ 2% and SHEC @ 1% 4,116
Total tax liability 1,41,318
Total tax liability (rounded off) 1,41,320
Notes :
Particulars ` `

(1) Income from House Property

Gross annual value 96,000
Less: Municipal taxes paid by owner 1,000
Net Annual Value (NAV) 95,000
Less: Deduction under section 24 @ 30% of NAV 28,500 66,500
Rent received has been taken as the Gross Annual Value
in the absence of other information relating to Municipal
Value, Fair Rent and Standard Rent.
(2) Income under the head “Profits & Gains of Business
or Profession”
Net profit as per Profit & Loss Account 9,81,924
Add: Expenses debited to the Profit & Loss Account but
not allowable
(i) Salary paid to computer specialist in cash
disallowed under section 40A(3), since such cash 35,000
payment exceeds ` 20,000
(ii) Municipal Taxes paid in respect of residential flat let
out 1,000 36,000
10,17,924
Less: Expenses allowable but not debited to profit and
loss account
Interest paid on loan taken from LIC used for repair of
computer 3,500
10,14,424
Less: Income credited to Profit & Loss Account but not
taxable under this head:
(i) Dividend on shares of Indian companies 10,524
(ii) Income from UTI 7,600
(iii) Profit on sale of shares 17,590
(iv) Honorarium for valuation of answer papers 14,510
(v) Rent received from letting out of residential flat 96,000 1,46,224
8,68,200
(3) Capital gains:
Short term capital gain on sale of shares 17,590
(4) Income from other sources:
Dividend on shares of Indian companies 10,524
Less: Exempt under section 10(34) 10,524 Nil

Income from UTI 7,600

Less: Exempt under section 10(35) 7,600 Nil
Honorarium for valuation of answer papers 14,510 14,510
(5) Deduction under Chapter VI-A :

Deduction under section 80D (Medical Insurance Premium)
Policy holder Amount of Amount
Premium eligible for
(`) deduction
(`)
Self 9,000 9,000
Dependent brother 6,000 Nil
Major son dependent on him 8,000 Nil
Minor married daughter 5,000 Nil
Wife dependent on assessee 5,000 _5,000
14,000
Amount of deduction(amount payable or ` 15,000 14,000
whichever is lower)
Total deduction under Chapter VI-A 14,000
Note –
(i) Premium paid to insure the health of brother is not eligible for deduction under
section 80D.
(ii) Premium paid to insure the health of son is not eligible for deduction since
payment is made in cash.
(iii) Premium paid to insure the health of minor married daughter is not eligible for
deduction as she is not dependent on Mr. Praveen.
(iv) Premium paid to ensure health of wife is eligible for deduction whether or not
she is dependent on the assesse.
(6) ` 15,000 expended on foreign tour is allowable as deduction assuming that it was
incurred in connection with his professional work. Therefore, it requires no further
treatment.
(7) Incentive to articled assistants passing IPCC examination in their first attempt is
deductible under section 37(1).

(8) Repairs and maintenance paid in advance for the period 1.4.2011 to 30.9.2011 i.e.
for 6 months amounting to ` 1,000 will be allowed since Mr. Praveen is following the
cash system of accounting.
(9) It is assumed that the transaction of sale of shares has been entered into in a
recognized stock exchange and that securities transaction tax has been paid on
such sale. Since the period of holding of these shares is less than 12 months, the
profit arising therefrom is a short-term capital gain chargeable to tax at 15% under
section 111A.
9. (a) Provisions of section 201(1A) are attracted in case of failure to deduct or pay tax at
source.
According to provisions of section 201(1A) any person, including the principal officer
of a company,—
(i) who is required to deduct any sum in accordance with the provisions of this
Act; or
(ii) referred to in sub-section (1A) of section 192, being an employer,
does not deduct the whole or any part of the tax or after deducting fails to pay the
tax as required by or under this Act, he or it shall be liable to pay simple interest,—
(i) at one per cent for every month or part of a month on the amount of such tax
from the date on which such tax was deductible to the date on which such tax
is deducted; and
(ii) at one and one-half per cent for every month or part of a month on the amount
of such tax from the date on which such tax was deducted to the date on which
such tax is actually paid,
and such interest shall be paid before furnishing the statement in accordance with
the provisions of sub-section (3) of section 200.
(b) Tax deductible but not deducted 10% on ` 50,000 = 5000
Period of Default :-
15.06.2010 to 14.07.2010 1 Month
15.07.2010 to 14.08.2010 1 Month
15.08.2010 to 14.09.2010 1 Month
15.09.2010 to 14.10.2010 1 Month
15.10.2010 to 14.11.2010 1 Month
15.11.2010 to 14.12.2010 1 Month
15.12.2010 to 14.01.2011 1 Month

15.01.2011 to 09.02.2011 26 Days (1 Month as part of month)

8 Months
Tax deducted but not deposited 10% on ` 1,15,000 = 11,500
Period of Default :-
10.02.2011 to 9.03.2011 1 Month
10.03.2011 to 9.04.2011 1 Month
10.04.2011 to 9.05.2011 1 Month
10.05.2011 to 9.06.2011 1 Month
10.06.2011 to 9.07.2011 1 Month
10.07.2011 to 25.07.2011 16 Days (1 Month as part of month)
6 Months
Interest under section 201(1A) shall be as follows :- `

1% on tax deductible but not deducted i.e., 1% on
` 5,000 for 8 Months 400
1.50% on tax deducted but not deposited i.e., 1.50%
on ` 11,500 for 6 Months 1,035
1,435
10. (a) Section 139(4C) enjoins that, a university referred to in section 10(23C), should file
the return of income if its total income without giving effect to the exemption under
section 10, exceeds the basic exemption limit. The provisions of the Act will apply
as if it were a return required to be furnished under section 139(1). In the given
case, since the total income of the University before giving effect to the exemption
exceeds the basic exemption limit, it has to file its return of income.
(b) Any person who has furnished a return under section 139(1) or in pursuance of a
notice issued under section 142(1) can file a revised return if he discovers any
omission or any wrong statement in the return filed earlier. Accordingly,
(i) A defective or incomplete return filed under section 139(9) cannot be revised.
However, the defect can be removed.
(ii) A belated return filed under section 139(4) cannot be revised. Only a return
furnished under section 139(1) or in pursuance of a notice issued under
section 142(1) can be revised.
(iii) A return revised earlier can be revised again as the first revised return
replaces the original return. Therefore, if the assessee discovers any omission

or wrong statement in such a revised return, he can furnish a second revised

return within the prescribed time i.e. within one year from the end of the
relevant assessment year or before the completion of assessment, whichever
is earlier.
(iv) A return of loss filed under section 139(3) is deemed to be return filed under
section 139(1), and therefore, can be revised under section 139(5)
11. Computation of interest payable on delayed payment of service tax by Vibha Ltd.:-
Due date of payment of service tax 06.09.2011
Actual date of payment 30.11.2011
No. of days of delay (24+31+30) 85
Amount of service tax ` 10,000/-
Calculation of interest under section 75 @ 18% per 85 18
10,000 × ×
annum* 366 100
Amount of interest payable ` 418/-
*Note: With effect from 01.04.2011, the rate of interest under section 75 has been
increased to 18% per annum.
12. (a) No, service tax is not payable on donations and grants-in-aid received by a
Charitable Foundation imparting free livelihood training to the youth. Circular
No.127/09/2010 ST dated 16.08.2010 has clarified that donations and grants-in-aid
received from different sources by a Charitable Foundation imparting free livelihood
training to the poor and marginalized youth, will not be treated as ‘consideration’
received for such training and thus not subjected to service tax under ‘commercial
training or coaching service’ as donation or grant-in-aid is not specifically meant for
a person receiving such training or to the specific activity, but is in general meant
for the charitable cause championed by the registered Foundation. There is no
relationship other than universal humanitarian interest between the provider of
donation/grant and the trainee. In such a situation, service tax is not leviable, since
the donation or grant-in-aid is not linked to specific trainee or training.
(b) Yes, service tax is payable on the representation of the client before any statutory
authority in the course of proceedings initiated under any law by a practicing
Chartered Accountant.
Earlier, the taxable services provided or to be provided by a practicing Chartered
Accountant in his professional capacity, to a client, relating to representing the
client before any statutory authority in the course of proceedings initiated under any
law for the time being in force, by way of issue of notice, were exempt from the

whole of service tax leviable thereon vide Notification No. 25/2006 ST dated
13.07.2006. With effect from 01.05.2011, the said exemption stands withdrawn.
13. With effect from 01.04.2011, rule 2B inserted after rule 2A provides the manner of
determination of the value of taxable service for the banking and other financial services
so far as it pertains to purchase or sale of foreign currency, including money changing.
The value of service shall be determined as follows:-
(a) For a currency, when exchanged from, or to, Indian Rupees (INR)
For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall
be equal to the difference in the buying rate or the selling rate, as the case may be,
and the Reserve Bank of India (RBI) reference rate for that currency at that time,
multiplied by the total units of currency.
(b) Where the RBI reference rate for a currency is not available
Where the RBI reference rate for a currency is not available, the value shall be 1%
of the gross amount of Indian Rupees provided or received, by the person changing
the money.
(c) Where neither of the currencies exchanged is Indian Rupee
Where neither of the currencies exchanged is Indian Rupee, the value shall be
equal to 1% of the lesser of the two amounts the person changing the money would
have received by converting any of the two currencies into Indian Rupee on that day
at the reference rate provided by RBI.
14. With effect from 01.05.2011, the insurer carrying on life insurance business would have the
option to pay service tax on the gross premium charged from a policy holder reduced by the
amount allocated for investment, or savings on behalf of policy holder, if such amount is
intimated to the policy holder at the time of providing of service. In all other cases, the insurer
may pay service tax @ 1.5% of the gross amount of premium charged from a policy holder.
However, such option would not be available if the entire premium is only towards risk cover
in life insurance.
15. Computation of service tax payable by Rishabh Professionals Ltd.:-
Particulars Amount (`)
Services performed before such service became taxable (Note-1) Nil
Services provided to an International Organisation (Note-2) Nil
Free services rendered to the friends (Note-3) Nil
Advance received for the services to be rendered in July, 2011 (Note-4) 5,00,000
Other receipts 12,00,000

Total 17,00,000
Less: Exemption available to small service providers (Note-5) 10,00,000
Value of taxable services 7,00,000
Service tax @10% 70,000
Add: Education cess @ 2% 1,400
Add: Secondary and higher education cess @ 1% 700
Service tax payable 72,100
Notes:-
1. No service tax is payable for the value of services, which is attributable to services
provided during the period when such services were not taxable even if the amount
is realized after such services have become taxable.
2. Services provided to an International Organisation are exempt from the service tax
vide Notification No. 16/2002 ST dated 02.08.2002.
3. No service tax is payable when value of service is zero as the charging section 66
provides that service tax is chargeable on the value of taxable service. Hence,
service tax on free services provided is nil.
4. Advance received for t0he services to be rendered in July, 2011 is liable for service
tax. The amount of service tax included in the amount refunded in the next financial
year i.e. June 2011 would be adjusted against service tax liability of subsequent
periods. [It is assumed that ` 3,50,000 refunded in June, 2011 after the termination
of agreement includes the amount of service tax payable thereon].
5. Since, services provided by Rishabh Professional Ltd. became taxable on July 01,
2010, aggregate value of taxable services rendered in preceding financial year
2009-10 is Nil. Hence, Rishabh Professional Ltd. is eligible for exemption under
Notification No. 6/2005 ST dated 01.03.2005.
16. VAT system has many advantages like no tax evasion, transparency, certainty, reduction
in cascading effect of taxes etc. However, since the VAT is imposed or paid at various
stages and not at last stage, it increases the working capital requirements and the
interest burden on the same. In this way, it may be considered to be non-beneficial as
compared to the single stage-last point taxation system though to a certain extent, this
rigour can be brought down through input credits on purchases.
17. The threshold limit for small traders, as per the White Paper is ` 5 lakh. The same was
subsequently increased to ` 10 lakh.
18. Computation of VAT payable by Mr. Ram for the month of October, 2011:-
Particulars `

(A) Output tax payable

(i) On sale of finished goods produced from Goods ‘A’ within the 62,500
State (` 5,00,000 × 12.5%)
(ii) On taxable sale of finished goods produced from Goods ‘C’ within
the State (` 35,00,000 × 4 %) 1,40,000
Total (A) 2,02,500
(B) Input tax credit available
(i) Goods ‘A’ (Exempt) Nil
(ii) Goods ‘B’ (Note-1) Nil
(iii) Goods ‘C’ (` 30,00,000×12.5%) 3,75,000
Total (B) 3,75,000
Net VAT payable = (A)-(B) (1,72,500)
CST payable on inter-state sale of goods produced from Goods ‘A’
(` 7,00,000 × 1%) shall be paid from the balance of credit of ` 1,72,500. 7,000
Balance of input credit carried forward to next month 1,65,500
Notes:
1. Since, there is no opening and closing inventory, it implies that entire purchase of
the Goods ‘B’ is used to manufacture the finished goods (which are exempt from
tax). Further, purchases of goods, which are being utilized in the manufacture of
exempted goods, are not eligible for input tax credit. Hence, no input tax credit is
available in respect of VAT paid on purchase of Goods ‘B’.
2. If finished goods are sold in the course of inter-state trade and commerce, credit is
allowed.
19. Inter-State stock transfers do not involve sale and, therefore they are not subjected to
sales tax. The same position is continued under VAT.
However, the tax paid on:
(i) inputs used in the manufacture of finished goods which are stock transferred; or
(ii) purchases of goods which are stock transferred
is available as input tax credit after retention of 2% of such tax by the State
Governments.
20. VAT returns are to be filed monthly/quarterly/annually along with tax paid challans
according to the provisions of the State Acts. They should contain details of output tax
liability, value of input tax credit and payment of VAT and should be filed within the
prescribed time schedule. In case of any mistakes, revised returns may be filed. The
returns will be checked and any deficiency in payment of tax may have to be made good.

Filing of returns is designed with a view:

(i) to reduce cost of compliance
(ii) to encourage businesses to comply with their obligations; and
(iii) to ensure efficient processing of data.

SIGNIFICANT CIRCULARS & NOTIFICATIONS ISSUED BETWEEN 1.5.2010 AND 30.4.2011

Students may note that the Study Material for IPCC Group I Paper 4: Taxation A.Y. 2011-12
has been updated with the law as amended by the Finance Act, 2010 and notifications and
circulars issued upto 30.04.2010. This study material is relevant for the students of IPCC
appearing for November 2011 examination. The following are the amendments which have
been made between 01.05.2010 and 30.04.2011. It may carefully be noted that for the
students appearing in November 2011 examination, the amendments made by Notifications,
Circulars etc. up to 30.04.2011 are relevant.
I INCOME TAX
CIRCULARS
1. Circular No. 4/2010 dated 18.5.2010
Clarification regarding definition of new infrastructure facility for the purpose of
section 80-IA(4)
The CBDT has, vide this Circular, clarified that widening of an existing road by
constructing additional lanes as a part of a highway project by an undertaking
would be regarded as a new infrastructure facility for the purpose of section
80-IA(4)(i). However, simply relaying of an existing road would not be
classifiable as a new infrastructure facility for this purpose.
Regional Rural Banks not eligible for deduction under section 80P
The CBDT has, through this circular, reiterated that Regional Rural Banks are not eligible
for deduction under section 80P of the Income-tax Act, 1961 from the assessment year
2007-08 onwards. It has also been clarified that the Circular No. 319 dated 11-1-1982
deeming any Regional Rural Bank to be cooperative society stands withdrawn for
application with effect from A.Y.2007-08.
This is consequent to the amendment in section 80P by the Finance Act, 2006, providing
specifically that w.e.f. 1-4-2007, the provisions of section 80P will not apply to any co-
operative bank other than a Primary Agricultural Credit Society or a Primary Cooperative
Agricultural and Rural Development Bank. The same has been further clarified by this
circular.
Clarification regarding period of validity of approvals issued under section
10(23C)(iv), (v), (vi) or (via) and section 80G(5)
For the removal of doubts about the period of validity of various approvals granted by the
Chief Commissioners of Income-tax or Directors General of Income-tax under sub-
clauses (iv), (v), (vi) and (via) of section 10(23C) and by the Commissioners of Income-

tax or Directors of Income-tax under section 80G(5) of the Income-tax Act, 1961, the
CBDT has, through, this circular clarified the following:-
(1) For the purposes of sub-clauses (iv) and (v) of section 10(23C), any notification
issued by the Central Government under the said sub-clauses, on or after 13-7-
2006 will be valid until withdrawn and there will be no requirement on the part of the
assessee to seek renewal of the same after three years.
(2) For the purposes of sub-clauses (vi) and (via) of section 10(23C), any approval
issued on or after 1-12-2006 under the said sub-clauses would be a one time
approval and would be valid till it is withdrawn.
(3) For the purposes of section 80G(5), existing approvals expiring on or after 1st
October, 2009 shall be deemed to have been extended in perpetuity unless
specifically withdrawn. Further, any approval under section 80G(5) on or after 1-10-
2009 would be a one time approval which would be valid till it is withdrawn.
NOTIFICATIONS
1. Ceiling for gratuity exemption raised to ` 10 lakhs
Section 10(10)(ii) exempts any gratuity received under the Payment of Gratuity Act,
1972, to the extent it does not exceed an amount calculated in accordance with the
provisions of sub-sections (2) and (3) of section 4 of that Act. The limit specified under
sub-section (3) of section 4 has been increased from ` 3,50,000 to ` 10,00,000 by the
Payment of Gratuity (Amendment) Act, 2010 dated 17th May, 2010.
Thereafter, the Central Government has enhanced the notified limit under section
10(10)(iii) from ` 3,50,000 to ` 10,00,000 in relation to employees who retire or become
incapacitated prior to such retirement or die on or after 24th May, 2010 or whose
employment is terminated on or after the said date. In effect, the ceiling for gratuity
exemption under section 10(10)(iii), which is relevant for employees not covered under
the Payment of Gratuity Act, 1972, has also been increased to ` 10 lakh vide Central
Government Notification No.43/2010 dated 11th June, 2010.
2. Notification No.41/2010 dated 31.05.2010
Substitution of Rules 30, 31, 31A, in the Income-Tax Rules, 1962.
Rule 30 – Time and mode of payment to Government account of TDS or tax paid
under section 192(1A)
(a) All sums deducted in accordance with Chapter XVII-B by an office of the
Government shall be paid to the credit of the Central Government on the same day
where the tax is paid without production of an income-tax challan and on or before
seven days from the end of the month in which the deduction is made or income-tax
is due under section 192(1A), where tax is paid accompanied by an income-tax
challan.

(b) All sums deducted in accordance with Chapter XVII-B by deductors other than a
Government office shall be paid to the credit of the Central Government on or
before 30th April, where the income or amount is credited or paid in the month of
March. In any other case, the tax deducted should be paid on or before seven days
from the end of the month in which the deduction is made or income-tax is due
under section 192(1A).
(c) In special cases, the Assessing Officer may, with the prior approval of the Joint
Commissioner, permit quarterly payment of the tax deducted under section 192/
194A/194D/194H on or before 7th of the month following the quarter, in respect of
first three quarters in the financial year and 30th April in respect of the quarter
ending on 31st March. The dates for quarterly payment would, therefore, be 7th
July, 7th October, 7th January and 30th April, for the quarters ended 30th June,
30th September, 31st December and 31st March, respectively.
Rule 31 – Certificate of TDS to be furnished under section 203
(a) The certificate of deduction of tax at source to be furnished under section 203 shall
be in Form No.16 in respect of tax deducted or paid under section 192 and in any
other case, Form No.16A.
(b) Form No.16 shall be issued to the employee annually by 31st May of the financial
year immediately following the financial year in which the income was paid and tax
deducted. Form No.16A shall be issued quarterly within 15 days from the due date
for furnishing the statement of TDS under Rule 31A.
Rule 31A – Statement of deduction of tax under section 200(3)
(a) Every person responsible for deduction of tax under Chapter XVII-B shall deliver, or
cause to be delivered, the following quarterly statements to the DGIT (Systems) or
any person authorized by him, in accordance with section 200(3):
(1) Statement of TDS under section 192 in Form No.24Q;
(2) Statement of TDS under sections 193 to 196D in Form No.26Q in respect of all
deductees other than a deductee being a non-resident not being a company
or a foreign company or resident but not ordinarily resident in which case the
relevant form would be Form No.27Q.
(b) The time limit for furnishing such quarterly statements shall be 15th of the month
following each quarter in respect of the first three quarters and 15th May for the last
quarter ending on 31st March. The due dates would therefore be 15th July, 15th
October, 15th January and 15th May for the quarters ending 30th June, 30th
September, 31st December and 31st March, respectively.
3. Notification Nos. 48/2010 dated 9.7.2010 & 77/2010 dated 11.10.2010
Notification of long-term infrastructure bonds by the Central Government, subscription to
which would qualify for deduction under section 80CCF

Section 80CCF provides that an assessee, being an individual or a Hindu Undivided

Family, shall get a deduction of up to rupees twenty thousand in computing his total
income if he subscribes to long-term infrastructure bonds as may be notified by the
Central Government for this purpose.
Consequently, the Central Government has, vide these notifications, specified the long-term
infrastructure bonds, subscription to which would qualify for deduction under section 80CCF.
Accordingly, subscription to long-term infrastructure bonds of Industrial Finance Corporation
of India, Life Insurance Corporation of India, Infrastructure Development Finance Company
Limited and a non-banking Finance Company classified as an Infrastructure Finance
Company by the Reserve Bank of India would qualify for deduction under section 80CCF.
Further, subscription to long-term infrastructure bonds of India Infrastructure Finance
Company Ltd. would also qualify for deduction under section 80CCF.
4. Notification No. 59/2010 dated 21.07.2010
Cost Inflation Index of financial year 2010-11 notified
Clause (v) of Explanation to section 48 defines “Cost Inflation Index”, in relation to a
previous year, to mean such Index as the Central Government may, by notification in the
Official Gazette, specify in this behalf, having regard to 75% of average rise in the
Consumer Price Index for urban non-manual employees.
Accordingly, the Central Government has, in exercise of the powers conferred by clause
(v) of Explanation to section 48, specified the Cost Inflation Index for the financial year
2010-11 as 711.
S. No. Financial Year Cost Inflation Index
1. 1981-82 100
2. 1982-83 109
3. 1983-84 116
4. 1984-85 125
5. 1985-86 133
6. 1986-87 140
7. 1987-88 150
8. 1988-89 161
9. 1989-90 172
10. 1990-91 182
11. 1991-92 199
12. 1992-93 223
13. 1993-94 244
14. 1994-95 259

15. 1995-96 281

16. 1996-97 305
17. 1997-98 331
18. 1998-99 351
19. 1999-2000 389
20. 2000-01 406
21. 2001-02 426
22. 2002-03 447
23. 2003-04 463
24. 2004-05 480
25. 2005-06 497
26. 2006-07 519
27. 2007-08 551
28. 2008-09 582
29. 2009-10 632
30. 2010-11 711
5. Notification No. 80/2010 dated 19.10.2010 (as amended by Notification No.20/2011
dated 21.4.2011)
Notification of annuity plan for deduction under section 80C
Deduction under section 80C is available in respect of any sum paid or deposited to
effect or to keep in force a contract for such annuity plan of the Life Insurance
Corporation or any other insurer as the Central Government may, by notification in the
Official Gazette specify in this behalf.
Accordingly, the Central Government, has, through this notification specified the Tata
AIG Easy Retire Annuity plan of the Tata AIG Life Insurance Company Limited as the
annuity plan of the Tata AIG Life Insurance Company Limited for the purposes deduction
under section 80C.
Salaried persons entitled to act as Tax Return Preparers
In exercise of the powers conferred under section 139B(1), the CBDT had framed the
Tax Return Preparer Scheme, 2006 for the purpose of enabling any specified class or
classes of persons in preparing and furnishing their return of income. “Specified class or
classes of persons” means any person, other than a company or a person, whose
accounts are required to be audited under section 44AB or under any other law for the
time being in force, who is required to furnish a return of income under the Act.

Paragraph 2(f) of the Tax Return Preparer Scheme, 2006 defining a Tax Return
Preparer, specifically provided that a person who is in employment and income from
which is chargeable under the head “Salaries” shall not be entitled to act as a Tax Return
Preparer. This disqualification has now been removed by amending paragraph 2(f).
Consequently, a salaried person is now eligible to act as a Tax Return Preparer.
Consequential amendment has been made in Paragraph 11(1)(xii), which provided for
withdrawal of certificate given to the Tax Return Preparer in case he, after issue of Tax
Return Preparer Certificate to him, takes up an employment, income from which is
chargeable under the head “Salaries”. Henceforth, taking up a salaried employment
would not result in withdrawal of certificate given to the Tax Return Preparer.
However, it may be noted that as per section 139B(3) of the Income-tax Act, 1961, an
employee of the “specified class or classes of persons” is not authorized to act as a Tax
Return Preparer. A combined reading of section 139B(3) with the amended Tax Return
Preparer Scheme, 2006 reveals that employees of companies and persons whose
accounts are required to be audited under section 44AB or any other law for the time
being in force, are eligible to act as Tax Return Preparers.
Increase in exemption limit for allowance granted to employees working in a
transport system to meet their personal expenditure during the course of duty
Section 10(14)(ii) exempts any such allowance granted to the assessee either to meet
his personal expenses at the place where the duties of his office or employment of profit
are ordinarily performed by him or at the place where he ordinarily resides, or to
compensate him for the increased cost of living as may be prescribed and to the extent
as may be prescribed.
Rule 2BB(2) prescribes the allowances for the purposes of exemption under section
10(14)(ii). As per this rule, the exemption allowable in respect of any allowance granted
to an employee working in any transport system to meet his personal expenditure during
his duty performed in the course of running of such transport from one place to another
place (provided he is not in receipt of daily allowance) is 70% of such allowance, subject
to a maximum of ` 6,000 per month.
The monthly limit of ` 6,000 has been increased to ` 10,000 with retrospective effect
from 1st September, 2008. Therefore, with effect from 1st September, 2008, the
exemption would be 70% of such allowance, subject to a maximum of ` 10,000 per
month.
United Stock Exchange of India Ltd. notified as a recognized stock exchange
Clause (d) of the proviso to section 43(5) provides that an eligible transaction in respect
of trading in derivatives referred to in section 2(ac) of the Securities Contracts

(Regulation) Act,1956 carried out in a recognised stock exchange, which is notified by

the Central Government for this purpose, shall not be deemed to be a speculative
transaction.
Accordingly, in exercise of the powers conferred under section 43(5) read with Rule
6DDB, the Central Government has notified the United Stock Exchange of India Limited
as a recognised stock exchange for the purpose of the said clause. The notification also
lays down certain conditions to be fulfilled by the stock exchange.
It may be noted that at present, there are three other stock exchanges notified as
recognized stock exchanges for the purposes of section 43(5), namely, the National
Stock Exchange, Bombay Stock Exchange and MCX Stock Exchange.
Conditions to be fulfilled for a stock exchange to qualify as a recognized stock
exchange for the purposes of section 43(5) - Modification of cash and derivative
market transactions registered in the system permitted in case of genuine error
Clause (d) of proviso to section 43(5) provides that an eligible transaction in respect of
trading in derivatives referred to in section 2(ac) of the Securities Contracts (Regulation)
Act,1956 carried out in a recognised stock exchange shall not be deemed to be a
speculative transaction. Rule 6DDB provides for notification of recognised stock
exchange for the purposes of said clause.
Further, Rule 6DDA provides the conditions that a stock exchange is required to fulfil to
be notified as a recognised stock exchange for the purpose of abovementioned clause.
One of the conditions, specified in clause (iv) of Rule 6DDA, is that the stock exchange
shall ensure that transactions once registered in the system cannot be erased or
modified. This clause has been substituted to provide that the stock exchange shall
ensure that transactions (in respect of cash and derivative market) once registered in the
system are not erased.
Another condition has been stipulated by insertion of clause (v), which provides that the
stock exchange shall ensure that the transactions (in respect of cash and derivative
market) once registered in the system are modified only in cases of genuine error. The
stock exchange should maintain data regarding all transactions (in respect of cash and
derivative market) registered in the system which have been modified and submit a
monthly statement in Form No. 3BB to the Director General of Income-tax (Intelligence),
New Delhi within fifteen days from the last day of each month to which such statement
relates.
Corresponding amendment has been made in Rule 6DDB requiring that the application
for notification of a recognised stock exchange should be accompanied by inter alia,
confirmation regarding fulfilling the conditions referred to in clauses (ii) to (v) of Rule
6DDA.


Notification of return forms for A.Y.2011-12
The CBDT has notified the new income-tax return forms for the Assessment year 2011-12.
Rule 12 of the Income-tax Rules, 1962 has been amended in respect of the following :-
(1) Reference to return of fringe benefits has been removed.
(2) Form Saral-II (ITR-1) has been substituted by the Form “SAHAJ” (ITR-1), which
would be applicable for individuals, whose total income includes income chargeable
under the head –
(i) “Salaries” or income in the nature of family pension under section 57(iia); or
(ii) “Income from house property”, where the assessee does not own more than one
house property and does not have any brought forward loss under the head; or
(iii) “Income from other sources”, except winnings from lottery or income from race
horses.
(3) The return of income in case of a person being an individual and HUF deriving
business income and such income is computed on presumptive basis under section
44AD and section 44AE to be in Form SUGAM (ITR-4S) and be verified in the
manner indicated therein.
SAHAJ and SUGAM Forms notified by CBDT are the simplest, technology enabled and
taxpayer friendly return forms. These have been designed to facilitate error free and faster
digitization. This is expected to curtail processing cycle and expedite issue of refunds.
11. Notification No. 24/2011 issued in supersession of Notification No. 69/2010 dated
26.8.2010
9.5% notified as the interest rate on RPF, the interest in excess of which would be
taxable as salary
Rule 6 of Part A of the Fourth Schedule to the Income-tax Act, 1961, provides, inter alia,
that interest credited on the balance to the credit of an employee participating in a
recognized provident fund in so far as it is allowed at a rate exceeding such rate notified
by the Central Government, shall be deemed to have been received by the employee in
the relevant previous year and shall be included in his total income.
Accordingly, the Central Government has, vide this notification, notified w.e.f. 1st
September, 2010, in exercise of the powers conferred by Rule 6, 9.5% as the rate of
interest on employer’s annual contributions in a recognized provident fund. In effect, the
Notification No. 69/2010 dated 26.8.2010, notifying the rate of interest as 8.5% w.e.f. 1st
September, 2010, has been superseded by this notification.
This implies that interest credited on the balance to the credit of the employee in excess
of 9.5% (and not 8.5% as earlier notified to be effective from 1.9.2010) shall be deemed
to have been received by the employee in the previous year and shall be included in the

total income of the employee. Prior to 1.9.2010, in any case, the interest credited in
excess of 9.5% was deemed to be the income of the employee.
Therefore, the position of law as it stands now after issue of this notification is that
irrespective of the date of credit of interest, whether before or on or after 1.9.2010, only
the interest credited on the balance to the credit of the employee in excess of 9.5% shall
be included in the total income of the employee. For example, if an employer credits
interest @10% for the P.Y.2010-11 on the balance standing to the credit of each
employee, then the excess interest of 0.5% (10% - 9.5%) would be included in the total
income of the employee for that year.
II SERVICE TAX
A. EXEMPTIONS/AMENDMENTS IN/WITHDRAWALS OF EXISTING EXEMPTIONS
1. Service tax paid on service provided by airports authority to an exporter for export
of goods eligible for refund
Service tax paid on certain taxable services that are used in relation to or for export of
goods are eligible for refund under Notification No. 17/09 ST dated 07.07.2009. The said
Notification covers port service within its ambit but does not include ‘airport service’.
Such anamoly has been corrected by amending the said Notification so as to include
‘airport service’ in the list of eligible services under the said refund scheme.
[Notification No. 37/2010 ST dated 28.06.2010]
2. Exemption to packaged or canned software from service tax on specified taxable
service when excise/customs duty paid
Prior to amendment
The taxable service of providing the right to use the packaged/canned software, pre-
packed in retail packages intended for single use has been exempted from the service tax
under ‘information technology software services’ subject to the following conditions:-
1. the document providing the right to use such software is packed along with the software.
2. (a) In case of import: The importer has paid the custom duty on the entire
amount received from the buyer.
(b) In case of domestic production: The manufacturer/duplicator/the person
holding the copyright to software has paid the excise duty on the entire amount
received from the buyer.
3. the benefit under the following notifications has not been availed:-
• Notification No. 17/2010 CE dated 27.02.2010
• Notification No. 31/2010 Cus dated 27.02.2010
[Notification No. 02/2010 ST dated 27.02.2010 and Notification No. 17/2010 ST dated
27.02.2010]

Amendment made by Notification No. 51-53/2010-S.T. dated 21-12-2010

Notification No. 02/2010 and 17/2010 have been rescinded by Notification No. 51/2010
and 52/2010 respectively. Further, Notification No. 53/2010-S.T. has been issued to
exempt the service of providing the right to use the packaged or canned software
(hereinafter referred to as ‘said goods’) under ‘information technology software services’
from the whole of service tax, subject to the condition that-
(i) the value of the said goods domestically produced/imported, for the purposes of
excise duty or countervailing duty (if imported) has been determined on the basis of
MRP valuation (i.e. under section 4A of the Central Excise Act, 1944) and
(ii) (a) In case of domestic production: the appropriate duties of excise on such
value have been paid by the manufacturer, duplicator or the person holding the
copyright to such software, as the case may be, in respect of software
manufactured in India; or
(b) In case of import: the appropriate duties of customs including the additional
duty of customs on such value, have been paid by the importer in respect of
software which has been imported into India.
(iii) a declaration made by the service provider on the invoice relating to such service
that no amount in excess of the retail sale price declared on the said goods has
been recovered from the customer.
Meaning of important terms
(i) Appropriate duties of excise
It means the duties of excise leviable under section 3 of the Central Excise Act, 1944
and a notification, for the time being in force, issued in accordance with the provision of
sub-section (1) of section 5A of the said Central Excise Act; and
(ii) Appropriate duties of customs
It means the duties of customs leviable under section 12 of the Customs Act, 1962 and any of
the provisions of the Customs Tariff Act, 1975 and a notification, for the time being in force,
issued in accordance with the provision of section 25(1) of the said Customs Act.
3. Exemption to services received by a developer or units of a special economic
zone, (refund of service tax paid) - Notification No. 9/2009-ST dated 03.03.2009
superseded
(A) Eligibility for exemption
The taxable services received by any of the following are eligible for exemption under this
notification:-
• a unit located in a Special Economic Zone (hereinafter referred to as SEZ)

• developer of SEZ for the authorized operations

(B) Conditions to be fulfilled
(a) List of taxable services required to be approved by the Approval Committee
For the purpose of claiming exemption, the Developer or Unit of SEZ shall obtain a
list of taxable services as are required for the authorised operations approved by
the Approval Committee (hereinafter referred to as the specified services) of the
concerned SEZ.
(b) Declaration by the developer/unit of SEZ not owning/carrying out any business
other than SEZ operations
The Developer or Unit of SEZ who does not own or carry out any business other
than SEZ operations, shall furnish a declaration to that effect in Form A-1, verified
by the Specified Officer of the SEZ, in addition to obtaining list under condition (a)
above, for the purpose of claiming exemption.
(c) Option not to pay service tax ab-intio in case the specified services wholly
consumed within the SEZ
(i) Where the specified services are wholly consumed within the SEZ
Service provider/service receiver (reverse charge basis) has the option not to
pay the service tax. Hence, under this option, instead of the Unit or Developer
claiming exemption by way of refund, service tax may not be paid ab intio.
(ii) Where the specified services are not wholly consumed within the SEZ
Where the specified services received and used for authorised operations are
partially consumed within the SEZ and partially outside SEZ, the exemption
shall be provided only by way of refund of service tax paid on the specified
services received for the authorised operations in a SEZ. Hence, the option of
not paying the service tax ab-intio is not available here.
Meaning of wholly consumed
For the purposes of this notification, the expression ―
Wholly consumed refer to following taxable services, received by a developer
or unit of a SEZ, for the authorised operations, namely:-
(i) services listed in clause (i) of sub-rule (1) of rule 3 of the Export of
Services Rules, 2005 in relation to an immovable property situated within
the SEZ; or
(ii) services listed in clause (ii) of sub-rule (1) of rule 3 of the Export of
Services Rules, 2005, as are wholly performed within the SEZ; or

(iii) services other than those falling under (i) and (ii) above, provided to a
Developer or Unit of SEZ, who does not own or carry on any business
other than the operations in the SEZ.
(d) Restricted amount of refund in case the specified services are not wholly
consumed within the SEZ
Where the specified services received by Unit or Developer, are not wholly
consumed within SEZ, i.e., shared between authorised operations in SEZ Unit and
Domestic Tariff Area(DTA) Unit, refund shall be restricted to the extent of the ratio
of export turnover to the total turnover for the given period to which the claim
relates.
ST × ET
Maximum refund =
TT
where
ST stands for service tax paid on specified services used for SEZ authorised
operations shared with DTA Unit for the period
ET stands for Export turnover of SEZ Unit for the period
TT stands for Total turnover for the period
For the purposes of condition (d),-
(a) Total turnover means the sum total of the value of:-
(i) all output services and exempted services provided, including the value of
services exported;
(ii) all excisable and non-excisable goods cleared, including the value of the
goods exported;
(iii) bought out goods sold,
during the period to which the invoices pertain and the exporter claims the
facility of refund under this notification.
(b) Turnover of SEZ Unit means the sum total of the value of:-
(i) final products exported,
(ii) output services exported
during the period of which the invoices pertain and the exporter claims the
facility of refund under this notification.

(e) Declaration that the specified services have been actually used for the
authorized operations
Any Developer or Unit of SEZ claiming the exemption shall declare that the
specified services on which exemption and/ or refund is claimed to have been
actually used for the authorized operations.
(f) Developer/unit of SEZ claiming refund must actually pay the amount indicated
in invoice
The Developer or unit of SEZ claiming the exemption, by way of refund has actually
paid the amount indicated in the invoice, bill or as the case may be, challan,
including the service tax payable, to the person liable to pay the said tax or the
amount of service tax payable under reverse charge, as the case may be, under the
provisions of the Finance Act.
(g) No CENVAT credit of service tax paid on the specified services availed
No CENVAT credit of service tax paid on the specified services used for the
authorized operations in a SEZ has been taken under the CENVAT Credit Rules,
2004.
(h) No exemption/refund of service tax paid on specified services claimed under
any other notification
Exemption of service tax paid on the specified services (refund, in case of other
than wholly consumed services) used for the authorised operations in a SEZ shall
not be claimed except under this notification.
(i) Maintenance of proper account of receipt and use of the specified services
The developer or unit of a SEZ, who intends to avail exemption and or refund under
this notification, shall maintain proper account of receipt and use of the specified
services on which exemption is claimed, for authorised operations in the SEZ.
(C) Procedure for claiming the benefit of the exemption
(a) Refund claim to be filed by Developer or Unit of a SEZ
The Developer or Unit of a SEZ, who has paid the service tax under sections 66 of
the Finance Act, shall avail the exemption by filling a claim for refund of service tax
paid on specified services used for the authorised operations.
(b) Registered Developer or Unit of a SEZ to file the claim to jurisdictional
Assistant/Deputy Commissioner of Central Excise
The Developer or Unit of a SEZ who is registered as an assessee under the Central
Excise Act, 1944 (1 of 1944) or the rules made there under, or the Finance Act,
1994 or the rules made there under, shall file the claim for refund to the Assistant
Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as

the case may be, having jurisdiction over the SEZ or registered office or the head
office of the Developer or Unit, as the case may be, in Form A-2.
(c) Unregistered Developer or Unit of a SEZ to file a declaration in Form A-3 with
the jurisdictional Assistant/Deputy Commissioner of Central Excise before
filing claim
The Developer or Unit of a SEZ who is not so registered under the provisions
referred to in clause (b), shall, before filing a claim for refund under this notification,
file a declaration with the Assistant Commissioner/Deputy Commissioner of Central
Excise, as the case may be, having jurisdiction over the SEZ or registered office or
the head office of the Developer or Unit, as the case may be, in Form A-3.
(d) Allotment of service tax code number within 7 days in Form A-3
The Assistant Commissioner/Deputy Commissioner of Central Excise, as the case
may be, shall, after due verification, allot a service tax code number to the
Developer or Unit of SEZ, referred to in clause (c), within seven days from the date
of receipt of the said declaration, in Form A-3.
(e) Time-limit of one year for filing the refund claim
The claim for refund shall be filed, within one year from the end of the month in
which actual payment of service tax was made by such developer or unit to the
registered service provider.
Extension of time-limit of one year
The aforesaid period of one year can be extended if the Assistant
Commissioner/Deputy Commissioner of Central Excise, as the case may be, so
permit.
(f) Documents to accompany the refund claim
The refund claim shall be accompanied by the following documents, namely:-
(i) a copy of the list of specified services as are required for the authorized
operations in the SEZ, as approved by the Approval Committee; wherever
applicable, document specified in 2(c), i.e. , declaration in Form A-1;
(ii) invoice or a bill or as the case may be, a challan, issued in accordance with
the provisions of Finance Act or rules made thereunder, in the name of the
Developer or Unit of a SEZ, by the registered service provider, along with proof
of payment for such specified services used for the authorised operations and
service tax paid, in original;
(iii) a declaration by the Developer or Unit of SEZ, claiming such exemption, to the
effect that—
(A) the specified services on which refund of service tax claimed, has been
actually used for the authorized operations in the SEZ ;

(B) proper account of the specified services received and used for the
authorised operations are maintained by the developer or unit of the SEZ
and the same shall be produced to the officer sanctioning refund, on
demand;
(C) accounts or documents furnished by the Developer or Unit as proof of
payment of service tax claimed as refund, based on the invoice, or bill , or
as the case may be challan issued by the registered service provider
indicating the service tax paid on such specified services, are true and
correct in all respects.
(g) Grant of refund after due verification
The Assistant Commissioner/Deputy Commissioner of Central Excise, as the case
may be, after verifying that,-
(i) the refund claim is complete in all respects;
(ii) the information furnished in Form A-2 and in supporting documents correctly
indicate the service tax involved in the specified services used for the
authorised operations in the SEZ, which is claimed as refund, and has been
actually paid to the service provider,
shall refund the service tax paid on the specified services.
(h) Service provider to provide the specified services falling under wholly
consumed category under exemption provided Developer or Unit of SEZ
produce the specified documents
A service provider, shall provide the specified services falling under wholly
consumed category, under exemption granted by this notification, to a Developer or
Unit of SEZ, for authorized operations, subject to the production of documents
specified in sub-para (b) of para (B). and in addition wherever applicable,
documents specified in sub-para (c) para (B), i.e., declaration in Form A-1.
(i) Recovery of erroneous refund
Where any refund of service tax paid on specified services is erroneously
refunded for any reasons whatsoever, such service tax refunded shall be
recoverable under the provisions of the Finance Act, 1994 and the rules made
there under, as if it is recovery of service tax erroneously refunded;
Points to be noted
1. Words and expressions used in this notification and defined in the Special
Economic Zones Act, 2005 or the rules made thereunder, shall apply, so far as
may be, in relation to refund of service tax under this notification as they apply
in relation to a SEZ.

2. Meaning of statutory auditor

Statutory auditor refers to a Chartered Accountant who audits the annual
accounts of the Developer or Unit of a SEZ for the purposes of the Companies
Act, 1956 or the Income Tax Act, 1961.
[Notification No. 17/2011 dated 01.03.2011]
4. Withdrawal of exemption to the practicing Chartered Accountant, practicing
Company Secretary and practicing Cost Accountant representing the client before
any statutory authority in the course of proceedings initiated under any law
Prior to amendment
Earlier, the taxable services provided or to be provided by a practicing Chartered
Accountant/ practicing Company Secretary/ practicing Cost Accountant in his
professional capacity, to a client, relating to representing the client before any statutory
authority in the course of proceedings initiated under any law for the time being in force,
by way of issue of notice, were exempt from the whole of service tax leviable thereon
vide Notification No. 25/2006 ST dated 13.07.2006.
Amendment made by Notification No.32/2011—ST dated 25.04.2011
With effect from 01.05.2011, the said exemption stands withdrawn. It implies that the
representational services provided by practicing Chartered Accountants, practicing Cost
Accountants and practicing Companies Secretaries are liable to service tax.
5. Exemption to preschool coaching and training and coaching leading to grant of a
certificate/diploma/degree/educational qualification recognised by any law
With effect from 01.05.2011, the following services provided by any commercial coaching
or training centre have been exempted from service tax:-
(i) any preschool coaching and training;
(ii) any coaching or training leading to grant of a certificate or diploma or degree or any
educational qualification which is recognised by any law for the time being in force.
B. AMENDMENTS IN THE SERVICE TAX (DETERMINATION OF VALUE) RULES, 2006
1. Determination of value of service in relation to money changing [Rule 2A]
Rule 2B inserted after rule 2A provides the manner of determination of the value of
taxable service for the banking and other financial services so far as it pertains to
purchase or sale of foreign currency, including money changing. The value of service
shall be determined as follows:-

(a) For a currency, when exchanged from, or to, Indian Rupees (INR)
For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall
be equal to the difference in the buying rate or the selling rate, as the case may be,
and the Reserve Bank of India (RBI) reference rate for that currency at that time,
multiplied by the total units of currency.
Example I: US$ 1,000 are sold by a customer at the rate of ` 45 per US$.
RBI reference rate for US$ is ` 45.50 for that day.
Value of taxable service= (RBI reference rate for $ – Selling rate for $) × Total units
= ` (45.50 - 45) × 1,000
= ` 0.50 × 1,000
The taxable value shall be ` 500.
Example II: INR 70,000 is changed into Great Britain Pound (GBP) and the
exchange rate offered is ` 70, thereby giving GBP 1000.
RBI reference rate for that day for GBP is ` 69.
The taxable value shall be ` 1,000.
(b) Where the RBI reference rate for a currency is not available
Where the RBI reference rate for a currency is not available, the value shall be 1%
of the gross amount of Indian Rupees provided or received, by the person changing
the money.
(c) Where neither of the currencies exchanged is Indian Rupee
Where neither of the currencies exchanged is Indian Rupee, the value shall be
equal to 1% of the lesser of the two amounts the person changing the money would
have received by converting any of the two currencies into Indian Rupee on that day
at the reference rate provided by RBI.
The aforementioned amendment shall come into force on 01.04.2011.
[Notification No. 02/2011-ST dated 01.03.2011 as amended by Notification No.
24/2011 dated 31.03.2011]
2. Value of taxable service for the telecommunication service [Explanation to
rule 5(1)]
Following explanation to rule 5(1) has been inserted vide Notification No. 02/2011-
ST dated 01.03.2011 to provide clarification regarding the value of taxable service
under telecommunication service:-
For the removal of doubts, it is hereby clarified that for the telecommunication
service [Section 65(105)(zzzx)], the value of the taxable service shall be the gross

amount paid by the person to whom telecom service is provided by the telegraph
authority.
Clarification
In this regard, DOF No. 334/3/2011-TRU dated 28.02.2011 clarifies that in case of
service provided by way of recharge coupons or prepaid cards or the like, the value
shall be the gross amount charged from the subscriber or the ultimate user of the
service and not the amount paid by the distributor or any such intermediary to the
telegraph authority.
C. AMENDEMNTS IN THE SERVICE TAX RULES, 1994
1. Amendments in rule 6 - Payment of service tax
(a) Excess payment of service tax [Sub-rule (4B)]
Prior to amendment
In case the service provider has made excess payment, the same may be utilized
for the payment of service tax for the subsequent month liability subject to certain
conditions as prescribed under various clauses of sub-rule (4B) of rule 6.
Clause (iii) of the said sub-rule stipulates that the adjustment of excess amount paid
shall be subject to maximum of Rs. 1,00,000/- for a relevant month or quarter, as
the case may be, in cases where the excess payment is not due to delayed receipt
of details of payments towards taxable services.
Amendment made by Notification No. 03/2011-ST dated 01.03.2011
With effect from 01.04.2011, the aforesaid limit of Rs. 1,00,000 has been increased
to Rs. 2,00,000.
(b) Recovery of the amount of service tax short paid/not paid under self-
assessment [Sub-rule (6A)]
With effect from 01.04.2011, sub-rule (6A) has been inserted vide Notification No.
03/2011-ST dated 01.03.2011 which provides as follows:-
Where an amount of service tax payable has been self-assessed under sub-section
(1) of section 70 of the Act, but not paid, either in full or part, the same, shall be
recoverable alongwith interest in the manner prescribed under section 87 of the Act.
(c) Special rate of service tax in case of sale/purchase of foreign currency including
money changing amended [Sub-rule (7B)]
Prior to amendment
Sub-rule (7B) to rule 6 provided that person liable to pay service tax in relation to
purchase or sale of foreign currency, including money changing, provided by a
foreign exchange broker, including an authorised dealer in foreign exchange or an
authorized money changer, referred to in section 65(105)(zm) and section

65(105)(zzk) as amended had the option to pay an amount calculated at the rate of
0.25% of the gross amount of currency exchanged towards discharge of his
service tax liability instead of paying service tax @ 10%.
However, such option shall not be available in cases where the consideration for the
service provided or to be provided is shown separately in the invoice, bill or, as the
case may be, challan issued by the service provider [Proviso to sub-rule (7B)].
Amendment made by Notification No. 26/2011-ST dated 31.03.2011
With effect from 01.04.2011, sub-rule (7B) to rule 6 has been amended to provide
as follows:-
Person liable to pay service tax in relation to purchase or sale of foreign currency,
including money changing, provided by a foreign exchange broker, including an
authorised dealer in foreign exchange or an authorized money changer, referred to
in section 65(105)(zm) and section 65(105)(zzk) as amended had the option to pay
an amount at the following rates instead of paying service tax @ 10%:-
S.No. For an amount Service tax shall be calculated at the rate of
1. Upto Rs. 100,000 0.1 % of the gross amount of currency
exchanged
or
` 25
whichever is higher
2. Exceeding ` 1,00,000 ` 100 + 0.05 % of the gross amount of
and upto ` 10,00,000 currency exchanged
3. Exceeding ` 10,00,000 ` 550 + 0.01 % of the gross amount of
currency exchanged
or
` 5,000
whichever is lower
However, the person providing the service shall exercise such option for a financial
year and such option shall not be withdrawn during the remaining part of that
financial year [Proviso to sub-rule (7B)].
(d) Special rate of service tax leviable on life insurance increased from 1% to
1.5% [Sub-rule (7A)]
Prior to amendment
An insurer carrying on life insurance business liable for paying the service tax has
the option to pay an amount calculated @ 1% of the gross amount of premium
charged by such insurer towards the discharge of his service tax liability instead of
paying service tax@ 10%.

Such option was not available in cases where:-

• the entire premium paid by the policy holder is only towards risk cover in life
insurance; or
• the part of the premium payable towards risk cover in life insurance is shown
separately in any of the documents issued by the insurer to the policy holder.
Amendment made by Notification No. 35/2011 ST dated 25.04.2011
With effect from 01.05.2011, the insurer carrying on life insurance business would
have the option to pay service tax on the gross premium charged from a policy
holder reduced by the amount allocated for investment, or savings on behalf of
policy holder, if such amount is intimated to the policy holder at the time of providing
of service. In all other cases, the insurer may pay service tax @ 1.5% of the gross
amount of premium charged from a policy holder.
However, such option would not be available if the entire premium is only towards
risk cover in life insurance.
(e) Optional Composition Scheme for Distributor or Selling Agents of Lotteries
An optional mode of payment of service tax has been provided to a distributor or
selling agent of lotteries by inserting sub-rule (7C) in rule 6 of the Service Tax
Rules, 1994. The distributor or selling agents rendering the taxable service of
promotion, marketing or organising/assisting in organising lottery can discharge
their service tax liability in the following manner instead of paying service tax
@10%:
Where the guaranteed lottery ` 6000/- on every ` 10 Lakh (or part of ` 10
prize payout is > 80% Lakh) of aggregate face value of lottery tickets
printed by the organising State for a draw.
Where the guaranteed lottery ` 9000/- on every ` 10 Lakh (or part of ` 10
prize payout is < 80% Lakh) of aggregate face value of lottery tickets
printed by the organising State for a draw.
Points to be noted:-
1. In case of online lottery, the aggregate face value of lottery tickets will be the
aggregate value of tickets sold.
2. The distributor/selling agent will have to exercise such option within a period of
one month of the beginning of each financial year. The new service provider
can exercise such option within one month of providing the service.
3. The option once exercised cannot be withdrawn during the remaining part of
the financial year.
4. For the financial year 2010-11, the distributor or selling agent will have to
exercise such option by 07.11.2010.


(a) Distributor or selling agent: means an individual or firm or body corporate or
other legal entity under law so appointed by the Organising State through an
agreement to market and sell lotteries on behalf of the Organising State [Rule
2(c) of the Lottery (Regulation) Rules, 2010]
and shall include the distributor/selling agent authorized by lottery organizing
State.
(b) Draw: means a method by which the prize winning numbers are drawn for
each lottery/lottery scheme by operating the draw machine or any other
mechanical method based on random technology which is visibly transparent
to the viewers [Rule 2(d) of the Lottery (Regulation) Rules, 2010].
(c) Online lottery: means a system created to permit players to purchase lottery
tickets generated by the computer or online machine at the lottery terminals
where the information about the sale of a ticket and the player’s choice of any
particular number or combination of numbers is simultaneously registered with
the central computer server [Rule 2(e) of the Lottery (Regulation) Rules, 2010].
(d) Organising State: means the State Government which conducts the lottery
either in its own territory or sells its tickets in the territory of any other State
[Rule 2(f) of the Lottery (Regulation) Rules, 2010].
D. CLARIFICATIONS
1. Donations and grants-in-aid received by a Charitable Foundation imparting free
livelihood training to the youth not liable to service tax
It has been clarified that donations and grants-in-aid received from different sources by a
Charitable Foundation imparting free livelihood training to the poor and marginalized
youth, will not be treated as ‘consideration’ received for such training and thus not
subjected to service tax under ‘commercial training or coaching service as donation or
grant-in-aid is not specifically meant for a person receiving such training or to the specific
activity, but is in general meant for the charitable cause championed by the registered
Foundation. There is no relationship other than universal humanitarian interest between
the provider of donation/grant and the trainee. In such a situation, service tax is not
leviable, since the donation or grant-in-aid is not linked to specific trainee or training.
[Circular No.127/09/2010 ST dated 16.08.2010]
2. Service tax exemption applies to Education Cess and Secondary and Higher
Education Cess as well
It has been clarified that since Education Cess and Secondary and Higher Education
Cess are levied and collected as percentage of service tax, when and wherever service

tax is NIL by virtue of exemption, Education Cess and Secondary and Higher Education
Cess would also be NIL.
According to section 95(1) of the Finance (No.2) Act, 2004 and section 140(1) of the
Finance Act, 2007, Education Cess and Secondary and Higher Education Cess are
leviable and collected as service tax, and when whole of service tax is exempt, the same
applies to education cess and secondary and higher education cess as well.
[Circular No. 134/3/2011 ST dated 08.04.2011]
E. OTHER AMENDMENTS
1. Rate of interest for amount collected of service tax in excess increased by 5% per
annum [Section 73B]
Earlier, the rate of interest notified by the Central Government under section 73B was
13% per annum vide Notification No. 8/2006 dated 19.04.2006.
Amendment made by Notification No. 15/2011 dated 01.03.2011
With effect from 01.04.2011, the said notification has been amended to increase the rate
of interest to 18% per annum.
2. Rate of interest for delayed payment of service tax increased by 5% per annum
[Section 75]
Earlier, the rate of interest notified by the Central Government under section 75 was 13%
per annum vide Notification No. 26/2004 dated 10.09.2004.
Amendment made by Notification No. 14/2011 dated 01.03.2011
With effect from 01.04.2011, the said notification has been amended to increase the rate
of interest to 18% per annum.

Paper 4 Taxation For Nov 2011

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Paper 4 Taxation For Nov 2011

Uploaded by

Copyright:

Available Formats

PAPER – 4 : TAXATION

Residential Status and Scope of total income

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Subscription and 12,000 Honorarium received

© The Institute of Chartered Accountants of India

Provisions concerning Advance Tax and Tax Deducted at Source

© The Institute of Chartered Accountants of India

Special rate of service tax

© The Institute of Chartered Accountants of India

Details of sales of goods:-

1. (a) This statement is correct.

© The Institute of Chartered Accountants of India

Therefore, the residential status of Ms Diana, a French National, for A.Y.2011-12

© The Institute of Chartered Accountants of India

Gifts received from non-relatives are chargeable to tax as

© The Institute of Chartered Accountants of India

Personal purchase through credit card provided by Company – 12,000

Perquisite on sale of Motor Car to Mr. Sinha

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Less :Municipal taxes (for first floor)( 12,000/2) 6,000

© The Institute of Chartered Accountants of India

4. Computation of business income of Mr. Mahesh for the A.Y. 2011-12.

© The Institute of Chartered Accountants of India

Depreciation @ 15% 87,000

© The Institute of Chartered Accountants of India

Sale consideration 3,50,000

© The Institute of Chartered Accountants of India

4. Receipt of property other than immovable property received for a consideration

(b) Income from speculative business 9,000

© The Institute of Chartered Accountants of India

(i) Loss on gambling can neither be set-off nor be carried forward.

Tax on total income (including long-term capital gains of 9,338

© The Institute of Chartered Accountants of India

Computation of deduction u/s.80G

© The Institute of Chartered Accountants of India

(1) Income from House Property

© The Institute of Chartered Accountants of India

Income from UTI 7,600

(5) Deduction under Chapter VI-A :

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

15.01.2011 to 09.02.2011 26 Days (1 Month as part of month)

Interest under section 201(1A) shall be as follows :- `

© The Institute of Chartered Accountants of India

or wrong statement in such a revised return, he can furnish a second revised

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(A) Output tax payable

© The Institute of Chartered Accountants of India

Filing of returns is designed with a view:

© The Institute of Chartered Accountants of India

SIGNIFICANT CIRCULARS & NOTIFICATIONS ISSUED BETWEEN 1.5.2010 AND 30.4.2011

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Section 80CCF provides that an assessee, being an individual or a Hindu Undivided

© The Institute of Chartered Accountants of India